Producing a stronger, smaller and more unified Time Warner

Time Warner Inc. Chairman and Chief Executive Jeff Bewkes has spent the last several years dismantling one.

Gone is AOL, the online platform that acquired Time Warner in 2000 in a deal now considered one of the worst in corporate history. Discarded too is Time Warner Cable, the nation's second-largest cable operator. Time Inc., the venerable magazine and publishing house, is next, with a spinoff planned for 2014.

Even Bewkes' office at the posh Time Warner Center, overlooking Central Park, may soon be history. The company is expected to leave the luxurious address, a symbol of the excesses of the old Time Warner, for the less glamorous far west side of Manhattan within the next few years.

Relocating is not just about sending a message. It is also about unifying what remains of Time Warner under one roof for the first time since Warner Communications and Time Inc. agreed to merge almost 25 years ago.

"The transformation of the focus of Time Warner is probably a much bigger change than any media company in the last five years," says the energetic and trim Bewkes, who at 61 looks like he fell out of a Brooks Brothers catalog.

Armed with degrees from Yale and Stanford, Bewkes started at HBO — then part of Time Inc. — in 1979 and gradually rose through the ranks, becoming chief executive of the pay channel in 1995. Along the way he gained a reputation for being a pragmatic executive who was unafraid to be blunt when the situation called for it and unwilling to let sentimentality get in the way of business.

"From the time I first joined the company he was the rising star," says former Time Warner Chairman Richard Parsons, who groomed Bewkes to succeed him. "He's smart as a whip and focused 24/7 on the business."

Although some captains of media enjoy the glamour that goes with the job, Bewkes typically eschews the limelight.

"You don't see him prancing around Hollywood," Parsons says. "He's not a mogul and he doesn't pretend to be one."

Wall Street has rewarded Bewkes' efforts. About a month after he became chief executive in January 2008, Time Warner stock fell below $16 a share. Now it's at $65.55, a 40% gain from a year ago. In the third quarter, which ended Sept. 30, Time Warner posted a profit of $1.18 billion on revenue of $6.9 billion.

"They've done a much better job in the past couple years than I thought they could," says Sanford C. Bernstein analyst Todd Juenger, adding that Bewkes has "pioneered a trend that says these big media conglomerates are getting too messed up in their own complexities."

Those complexities were once seen as necessary for media giants hoping to find a combination of assets that would protect their bottom line from an uncertain future. The 1989 marriage of Time and Warner paired magazines with a Hollywood studio, but the real motivation was to combine their respective cable holdings to create a pay-TV distribution juggernaut.

Then in 1996, Time Warner acquired Turner Broadcasting, parent of cable networks CNN, TBS and TNT, to get content to go with that distribution.

The synergy strategy culminated with the 2000 marriage with America Online, the biggest merger in American history bringing new and old media together. AOL Chairman Steve Case said it would "transform the landscape of media and communications."

The only thing that got transformed was Time Warner. Its stock plummeted as investors lost confidence in management's vision and AOL went from being the pipeline of the future to a punch line. In 2003 Case was gone, and in 2009 Bewkes cast AOL off for good.

Bewkes, who while at HBO oversaw the network's push into original programming with shows such as "Sex and the City" and "The Sopranos," decided instead to bet that in the future distribution would become ubiquitous. Time Warner Cable was spun off in 2009 and the company focused all its efforts on entertainment.

"If you bring us a movie or a show, we can make more money out of it than if you took the exact same movie or show and gave it to somebody else," Bewkes says. "That's the advantage of going to Warner Bros."

On the movie side, for the third time in the last five years Warner will be the No. 1 studio at the U.S. box office. Through November, it has taken in more than $1.6 billion in ticket sales, for almost 20% of the domestic market.

That was without a "Batman" or "Harry Potter" movie, two of the company's strongest franchises. Besides "Gravity," the studio got stronger-than-expected performances from "The Conjuring" and "We're the Millers." Coming up to bat now is "The Hobbit: The Desolation of Smaug."

As strong as Warner Bros. is, HBO and Turner, which combined had $3.5 billion in revenue in the third quarter, are Time Warner's real engines.

"A lean, mean TV machine" is how Morgan Stanley analyst Ben Swinburne described the company in a recent report.

HBO is the prime example of that machine. Online rival Netflix Inc. has earned media attention and a sky-high stock price for rapid subscriber growth and original programming such as "House of Cards" and "Orange Is the New Black." But Netflix's profit last year was $226.1 million. HBO's was $1.6 billion.

"Don't look at stock, look at earnings," Bewkes says bluntly when asked about Netflix. "We happen to have the biggest, most profitable SVOD [subscription video on demand] service. It's called HBO."

Time Warner stock has risen partly because of Bewkes' assurances that the fees that cable and satellite operators shell out for the Turner networks will increase dramatically over the next few years.

Some analysts say that TNT's and TBS' bright futures might be compromised as audiences continue to fragment, and that niche networks such as Discovery Channel and Food Network are better long-term bets.

"I get stuck on TBS and TNT being stuck in the middle," Juenger says. "Neither has the scale of a CBS, and both are getting eaten alive by the niche guys. I can see a world where they have to spend more and more on content chasing smaller and smaller audiences."

"Nobody can drop our networks," Bewkes says. "You don't have a cable system if you don't have those networks."

Besides hit shows such as TNT's "Rizzoli and Isles" and popular reruns such as "The Big Bang Theory" on TBS, both channels carry valuable sports properties including the NBA, NCAA March Madness and postseason Major League Baseball.

Shedding AOL and Time Warner Cable and figuring out how to navigate the future may seem relatively easy compared to Bewkes' other big challenge — changing the corporate culture at Time Warner.

For decades, Time Warner has operated less as a cohesive unit and more as a collection of fiefdoms: Warner Bros. in Burbank, HBO in New York and Turner in Atlanta. Traditionally, the divisions have been run by executives who often viewed one another with suspicion. And they were not immune to petty squabbles, such as when Warner Bros. put the kibosh on Turner's Cartoon Network's plans to air some old politically incorrect Bugs Bunny cartoons.

Now, Bewkes, as a single unifying force, has assembled the next generation of Time Warner leadership. He oversaw the installations of Kevin Tsujihara at Warner Bros., Richard Plepler at HBO and John Martin, who will soon move from finance chief of Time Warner to chief executive of Turner.

All came of age in the present company. As Plepler puts it, "We've all worked with Jeff a long time, and the fact that we can speak shorthand with him on a range of issues just makes everything easier."

Warner Bros. TV had never made a show for HBO in the almost 25 years that they have been part of the same company. Now, Warner Bros. has two shows in the works for HBO: one from "Lost" co-creator Damon Lindelof called "The Leftovers" that will premiere next year and a pilot from J.J. Abrams based on the movie "Westworld."

"It's a big deal," Tsujihara says of the Warner Bros. deals with HBO. "There is an opportunity to create a new culture for both the companies we are running and also Time Warner as a whole, and we take that very seriously."

Plepler agrees. "There's a very organic camaraderie between the three of us and a larger sense that we're all on this ship together," he says.

Enduring the turmoil of the last decade has fostered a tight bond among Tsujihara, Plepler and Martin.

"It makes it a lot easier when there is a level of experience you share and you've gone through a few wars together," Tsujihara says. "You can pick up the phone and say, 'I need a little help here.'"

It's a marked change from the previous leadership at those units, whose loyalties were often more to their respective fiefdoms than to Time Warner.

"This has been a story of creating a real and organic thing," Bewkes says. "Now we have a company that naturally belongs together."